Coalition Agreement: soon codetermined? The “traffic light” coalition paves the way for an extension of corporate codetermination

On 7 December 2021, the SPD, Bündnis 90/Die Grünen and the FDP signed the Coalition Agreement entitled “Dare more progress – an alliance for freedom, justice and sustainability”. The 178-page programme of the future government envisages numerous amendments to corporate and commercial law, amongst other things a significant extension of the statutory obligation of enterprises to establish a supervisory board that comprises employee representatives (corporate codetermination).

“Germany is taking a globally significant position in corporate codetermination. We are upholding the existing national regulations. We want to prevent the abusive circumvention of applicable codetermination law.” (page 72 of the Coalition Agreement).

In essence, the “traffic light” coalition wants to remove the “freezing” effect of Societas Europaea (SE) and extend the regulations on group attribution to the German One-Third Participation Act [Drittelbeteiligungsgesetz – DrittelbG]. Both would have considerable effects on the current entrepreneurial landscape.

“Freezing” effect of Societas Europaea

One of the possibilities frequently chosen in practice to avoid corporate codetermination in future consists of transforming an existing enterprise into an SE. For codetermination law purposes, the before-after principle applies here, i.e. the codetermination level existing before the transformation (e.g. according to the provisions of the DrittelbG) also applies to the SE after the transformation. The codetermination is “frozen” at this level, however, and nothing changes in this respect either even if the threshold for a higher level of codetermination (e.g. more than 2000 employees according to the German Codetermination Act [Mitbestimmungsgesetz – MitbestG]) is exceeded at a later date.

The “traffic light” coalition will strive to ensure that this “freezing” effect is cancelled in the future. This ultimately means an amendment of the MitbestG and DrittelbG. If the legal form of SE were to be included in the scope of application of these laws, in future every SE would, by force of law and despite any deviating contractual regulation between the enterprise and employees, have to establish a codetermined supervisory board as soon as the number of employees exceeds the relevant threshold value.

Extension of the one-third participation

In addition thereto, the “traffic light” coalition is planning to extend the scope of application of the DrittelbG. The threshold for the application of the one-third codetermination is 500 employees. Currently, employees of the parent company working at a subsidiary are only included in the calculation of the threshold value if a control agreement exists between the parent and subsidiary or the subsidiary is integrated into the parent. In future, employees at the subsidiary must also be attributed to the parent company if the later only de facto controls its subsidiary, that is to say, for example, holds the majority of the voting rights there. This corresponds to the applicable legal situation in codetermination law.

This means that many stock corporations (AG) and private limited liability companies (GmbH) with majority holdings in other companies and currently still free of codetermination will, for the first time, have to include employee representatives in their supervisory board or actually establish a supervisory board.

When the amendments are going to be implemented is not foreseeable at present. Affected enterprises should take measures swiftly, however, in order to make use of the structuring options still open to them.

More information about the coalition negotiation can be found here:

• German Federal Election 2021: What plans does the new coalition have on armaments and defence?

• Coalition negotiations: what are the plans of the new coalitions? 

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